No Housing Bottom Yet

The market has properly seen through what appears to be a positive earnings report from builder Lennar. The key metric, orders, were poor. Orders were down 12 percent YOY, while the backlog (future orders) were down 12 percent.

This is not a recovery. Bottom line:

1) spring selling season off to slow start

2) Texas, one of the stronger markets nationwide, showed clear signs of weakness;

3) buyers perceive existing homes have greater value than new homes.

This last point drives builders — like my brother — absolutely nuts. They point out, quite rightly, that this is comparing apples to oranges.

In addition to the quality difference — all-new everything — the reason prices appear lower for existing homes compared to new homes is the flood of foreclosures. And foreclosed homes are usually in much less desirable neighborhoods. Not a fair comparison.

The glib solution to this dilemma — that builders will have have to lower their prices to compete against the cheaper existing homes — is an option, but only to a point. At some point, you will simply go broke playing that game.

That's why builders are continuing to cut new permits. Why build something you might have to sell at a loss?